Cement sector: High on the hog

Cement sales illustrated an uplift of 3.4 percent year on year to tally 13.1 million tons in 5MFY13, according to the recent results posted by APCMA.
This growth mainly comes on the heels of local sales which stood at 9.48 million tons in 5MFY13, depicting a significant growth of 7 percent year on year.
While the robust demand from the northern region of the country continued to remain a major contributor to the local sales hike, cement dispatches in the southern areas also demonstrated an uptick of 7 percent YoY to rest at 1.75 million tons.
Whereas, the encouraging local uptake proved to be a boon for the cement industry during the period; exports bore out to be a stumbling block, thus ebbing away the overall sales growth.
During the five months period under consideration, cement exports dropped by 4 percent YoY, mainly on the back of fragile demand from Afghanistan, the major export destination of Pakistani cement, accounting for more than 50 percent of the total cement exports.
During 5MFY13, exports to Afghanistan plunged by 4 percent YoY due to economic downturn in the country. To add further insult to the injury, exports to India also dropped by a whopping 39 percent YoY to tally 0.18 million during 5MFY13.
Exports to India have been declining unabatedly since the two countries unlocked their borders for liberal bilateral trade. The decline in exports to India is not due to feeble demand, but due to stern NTBs imposed by the Indian government, causing hurdles in the free flow of trade between the two countries.
Very recently, India has imposed another NTB by ordering the cement exporters of Pakistan to furnish a Performance Bank Guarantee of $10,000 to in order to be qualified for exporting cement to the India. This will further take its toll on cement exports to India.
On the flip side, exports via sea slightly rebounded, clocking in at 1.39 million tons in 5MFY13, as against 1.37 million tons during the similar period last year. However, since most of the cement manufacturers are located in Punjab and KPK and also because of high inland freight, sea export is not a viable option for the industry.
Nevertheless, if we glance at the sector performance in November alone, both local and export dispatches posted double digit growth, baptizing November to be the best month for the cement industry in FYTD.
Going forward, the cement sector fortunes are set to boost up further. Stable coal prices, improved retention prices, better PSDP allocation and continuous enhancements in infrastructure projects owing to forthcoming elections are expected to buttress the cement dispatches in the coming months. Moreover, amid low interest backdrop, the high leverage factor will continue to aid to the sectors profitability.